Morning Report: The next test for the Fed

Vital Statistics:

S&P futures4,1720.8
Oil (WTI)61.04-1.17
10 year government bond yield 1.57%
30 year fixed rate mortgage 3.14%

Stocks are flattish this morning as we head into Fed week and the meat of earnings season. Bonds and MBS are down small.

Flagstar Bank reached a deal to be acquired by New York Community Bank in an all-stock merger. Based on Friday’s closing prices, the deal is a 6% premium, which isn’t massive. It sounds like the rationale for this merger is not the typical cost-cutting one since there is no overlap of branches. It look like more of a strategic deal where NYCB wants to transition away from its roots as a thrift bank and add commercial banking heft. Lee M Smith of Flagstar will continue to run the mortgage operations, so it sounds like NYCB envisions keeping everything there. NYCB stock is up pre-open so it looks like the Street likes the deal.

The week ahead will have quite a bit of economic data with GDP on Thursday and Personal Incomes / Personal Spending on Friday. We will also have the FOMC meeting on Tuesday and Wednesday. No changes in policy are expected, however if the statement is unusually positive on the economy, bond prices could be vulnerable.

The next test for the Fed will be introducing the idea of returning to a more normal policy. The Fed wants to avoid a repeat of the “taper tantrum” when it made its first attempt to get off the zero bound. In the statement from the March meeting, it said that it wanted to see “substantial progress” towards full employment, and if you look at the employment-population ratio, it gives you kind of an idea what they need to see.

Pre-COVID, the employment-population ratio was 61.1% and it is now 57.8%. To get back to that level, we need to see about 11 million more jobs created. Given that inflation was still below the Fed’s target rate at that level, I think we have to assume that they are probably targeting that level again before they even think about increasing rates (or perhaps even tapering). I think the Fed feels like they were too aggressive last time around and will be less fearful of an inflationary surge. FWIW, CPI inflation was routinely in the 3% – 4% range during the mid- 1980s and 1990s, and most of us remember that period as pretty comfortable economically.

Durable Goods orders rose 0.5% in March, following a 0.9% decline in February. This was below the Street consensus of a 1.5% gain. Core Capital Goods orders (which are a good proxy for business capital expenditures) actually fell by 4.7% (excluding national defense). Inventory build was also minimal, which was another surprise.

The Biden Admin signed a mortgage relief bill that helps delinquent borrowers with their taxes and insurance bills. It will be distributed to states based on their unemployment rates.

20 Responses

    • If true, then . . . just absolutely delusional. Let’s go low and say that half of Republican voters were and remain largely pro-Trump. To argue “I want you guys who overwhelmingly voted for Trump to vote for me, so I can prosecute him . . . and, let’s be honest, probably you, too. And soon.”

      She did not find a way to stake out a middle ground and walk the tight rope. She has zero chance of getting the Republican nomination. Zero. Even without saying, “Oh, and I’m going to prosecute the former Republican president because clearly I think destroying the Republican party and chasing out the populists . . . the working class . . . probably the gun owners . . . Christians, you guys are a problem, too . . . I think that’s all a great idea. You suck. VOTE FOR ME!” Even without that I don’t see what makes her imagine she’s got a chance in hell of winning the GOP nomination.


    • I find it amazing that GOP politicians retain this fantasy that Democrats and their media mouthpieces will give them a scintilla of credit for doing something like this.

      We are in a bad faith environment. Act accordingly.


  1. Expert witnesses now under threat for giving politically incorrect testimony.

    What a great culture the D’s are fostering. How long until lawyers face disbarment for defending the “wrong” client?


      • It’s a complicated issue, because of social media. How long do you put up with obnoxious behavior in public forums directed at your institution? Where it is not school supervised or sanctioned–but it some ways it also feels as if it is happening “at school”.

        I get why the schools wouldn’t want to allow that kind of saltiness in public forums where–while not school related–the environment falls well within the milieu that “feels” like school to students and faculty alike.

        At the same time, you don’t want the schools to be policing thought outside of the school environment. That becomes highly problematic.

        I agree will Will and the amicus briefs he mentioned–and I understand why the school would want to punish or constrain the student for saying “fuck the school, fuck the coaches” in public forums. It’s not just critique but decorum involved–certainly wouldn’t have flown when I was a kid.

        But slippery slopes seem to be a very real problem. And how long before punishing students for “fuck the school” becomes punishing students for valid criticisms, or just relaying stories about what happened in a class or in the school that the school doesn’t want to become public knowledge? How long before it becomes punishment because the student, on their own time, expressed a political or social opinion incompatible with school doctrine in an environment not controlled or supervised by the school?

        Modern life is complicated.


        • I successfully defended Courts Martial of enlisted men off duty in civies at bars in Killeen wearing FTA tee shirts [1969].

          FTA = Fuck the Army.

          Army judges appreciated the 1stA applied to off duty guys in civvies.


        • As they should have. And I agree. The only difference now is really the blurring of the borders between school and free time when you’re kind of grouped in the same overall social media bubble, all the same people are on their, the school has a Facebook page. It’s muddier.


        • You really need to write an autobiography Mark.


        • You really need to write an autobiography Mark.

          Yes. Yes he does.


        • “Modern life is complicated.”

          Just make your Facebook profile private and don’t friend any school administrators.


      • Reading some of the comments on the article. A lot of folks saying: “It’s 50/50. They do woke indoctrination in these blue areas and schools, but they do MAGA right-wing indoctrination in the red state schools.”

        I don’t think this is true. I also don’t think it’s apples to apples. Are we considering right-wing “indoctrination” to be traditional civics classes, regular math classes, maybe teach some of the classics, etc., etc.

        Mr Will is, of course, overgeneralizing and propagandizing.

        One has to presume that such a well-educated and clued-up man would be aware of the concept of “local control” in schools, and that in deep-red counties and states, the indoctrination goes in exactly the opposite direction, with equal intensity.

        And a lot of this:

        Seriously? Whole lotta money to spend on an entitled White (me first!) teenager’s rant. But I guess ( no, I know), money’s no object when you’re privileged and White. Can’t help but wonder, though, how tone deaf it might appear to ANYONE of color to hear that one’s “free speech” has been abridged because she’s “not allowed to curse!” (poor thing.) Ask George Floyd about his “my Free Speech has been abridged” lawsuit.

        I don’t hold out much hope for humanity.


        • didn’t the left throw an absolute shit-fit over the concept of some bible-belt school teaching intelligent design alongside evolution?


        • Pennsylvania, I think. But deviating from the state standard science curriculum to teach a religious hypothesis raised some serious legal issues. As I recall, the State won over the locals. If I can dredge up the case I will post a link.


        • I guarantee that the commenters are both lily white and either went to a private school or a very affluent surburban public school.


      • As a side note, I don’t think I’ve ever seen the Post allow “Fuck” in a piece before.


    • Well, the message is clear.

      What a great culture the D’s are fostering. How long until lawyers face disbarment for defending the “wrong” client?

      Soon enough, I expect.


    • “How long until lawyers face disbarment for defending the “wrong” client?”

      It’s been building towards that for a while:

      In fairness, there was a similar backlash from some conservatives against lawyers representing detainees in Guantanamo during the George W. Bush administration.


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: